E-Gov Drives State and Local Market

E-Gov Drives State and Local Market<@VM>Who Rules State and Local<@VM>State and Local Government Total IT Forecasts, 2001-2003<@VM>U.S. E-Government Forecasts, 2000-2005<@VM>Total State and Local Government IT Forecasts by Agency, 2001-2003

The fact that electronic government services represent only about 5 percent of today's state and local information technology market hasn't stopped some systems integrators from chasing it as if it were the only opportunity available.

A lot of vendors are pursuing e-government because "it gives them better mind share and thought leadership in the industry," said Rishi Sood, principal analyst, Gartner Dataquest, Stamford, Conn.

Although it may not be the largest or most profitable market segment, it does have the distinction of being the fastest growing one, Sood said. State and local governments will increase their spending on e-government by at least 35 percent annually, from $1.9 billion in 2001 to $6.5 billion for 2005, according to Gartner Dataquest.

E-government refers to the process of bringing government services online and offering them to constituents through the Web. Online service allows citizens and businesses to conduct routine legal transactions with governments such as tax filing, vehicle registration and business licensing.

The process can save governments substantial revenue by reducing administrative costs associated with paper filing and staffing.

Kevin Curry, vice president and general manager of Unisys Public Sector, said he expects e-government to be one of the biggest drivers of government projects in the future. His observation was echoed by other leading systems integrators in Washington Technology's annual ranking of "Who's Who in State and Local Systems Integrators." This year's list of top revenue producers, compiled by market research firm Federal Sources Inc. of McLean, Va., includes many familiar faces.

The top two systems integrators with annual revenue of more than $1 billion in 2000 from the state and local IT market are EDS Corp. of Plano, Texas, and IBM Corp. of Armonk, N.Y.

Five companies in the second tier of state and local integrators brought in between $500 million and $1 billion in 2000. They are Accenture of Chicago; KPMG Consulting Inc. of McLean, Va.; Lockheed Martin Corp. of Bethesda, Md.; TRW Inc. of Cleveland; and Unisys Corp. of Blue Bell, Pa.

Another major state and local player, American Management Systems Inc. of Fairfax, Va., garnered more than $300 million in 2000 revenue.

Many officials from these companies have reported a surge in their e-government businesses during the last 12 to 18 months. Integrators such as AMS, Accenture and IBM have completed a wide variety of e-government projects that involve establishing portals and connecting procurement and services to them.

Accenture's global e-government business exploded in 2000 with a growth rate of 130 percent, said company officials.

"Government leaders are increasingly turning their attention to e-government creation," said Steve Rohleder, managing partner of Accenture's USA Government group.

To bring governments online requires that companies have core process expertise across agencies. Companies with this expertise are finding it easy to add Web capabilities to projects they already are doing for state and local governments, Sood said.

While some e-commerce firms might be lured to the state and local market by what they see as new business opportunities, there are significant industry characteristics that separate commercial vertical markets and public-sector organizations.

E-commerce firms that are successful in the private sector often are not familiar with the key charters of many government organizations. What might be beneficial to a private-sector firm might be detrimental to a government agency.

"Migrating that [commercial experience] to the government marketplace is not an easy step," Sood said. "There are process-specific areas that need to be fully understood in order to extend those capabilities online."

IBM is one of the companies that has migrated its e-business skills to e-government, according to Marianne Cooper, IBM's vice president of sales for state and local government.

She said that IBM has taken the e-business skills that it brought to private-sector companies and applied those skills to help transform government.

"We are well-positioned for the e-governance space," Cooper said.

The trend toward Web-enabling traditional applications will sustain e-government growth for a number of years, according to analysts and company officials.

"There is a shift in the mix of how dollars are being spent," said Tom Davies, senior vice president, Current Analysis Inc., Sterling, Va. "As the shift occurs, the dollars are being reallocated away from enhancing legacy mainframe and client-server based systems and toward Web-based solutions."

Spending for state and local government IT will outstrip spending for federal government IT by almost $10 billion in 2001, according to Gartner Dataquest.

The total state and local IT market will grow at a rate of 7 percent, 2 percent above the federal IT growth rate, from $45.62 billion in 2001 to $52.23 billion in 2003, according to Gartner Dataquest.

The systems integrators on Washington Technology's list reported an increase in sales ranging from 15 percent to 25 percent for their companies in 2000, but they expect the rate of growth to fall by about 5 percent in 2001.

Although the numbers are reassuring, there are warning signs that a slowing of the economy already has affected state budgets and that state legislatures are debating where to make budget cuts because of tax revenue shortfalls.

"There are valid concerns as to how changes in the economy will affect government spending, and there might be constrained resources as a result, but we don't yet know the magnitude," said Dave Kelly, director of consulting at Federal Sources.

Sood said that governments are fiscally sound after six years of tremendous economic growth and that a slowing economy probably would not affect a modest 7 percent growth rate over the short term.

Across state agencies, the biggest growth is occurring in the areas of administration and finance, human services and transportation, followed by public safety, health and justice, in that order, according to Gartner Dataquest.

Based on this information, companies are planning carefully where to focus their resources.

"We believe that the state and local markets we're in ? public safety, transportation, and health and human services ? are areas where there is a lot of growth potential," said Dave Zolet, vice president and general manager of TRW's civil systems programs division.

Many state and local governments are using health and human services contracts to upgrade their infrastructures, which provides companies with additional opportunities, said Albert Edmonds, president of EDS' Global Government Industry Group.

"This is where the bigger programs are going to be," he said.

Spending growth within agencies for IT components is the strongest among software and external services, which are growing at rates of 9.5 percent and 13.5 percent, respectively, according to Gartner Dataquest. Internal services and hardware are growing at rates of 2.5 percent and 3.0 percent, respectively.

Some traditional areas of the market, such as infrastucture to support e-government and outsourcing of data and services, will continue to grow this year, according to analysts and industry officials.

In addition, systems integrators have identified several new niches to pursue individually or collectively.

TRW and Unisys want to meet the needs of public safety agencies with wireless devices and nonemergency call systems.

Accenture, EDS and Unisys announced last month that they will offer election solutions to governments in the wake of last year's presidential election crisis.

Analysts and industry observers caution that it is too early in the George W. Bush presidency to tell what influence his administration will have on state and local IT. However, they are making some rough predictions based on his campaign promises, which included more funding for education, more flexibility for funding of demonstration projects and privatization, and tighter restrictions on eligibility and fraud determination.

"If the vision of the Bush administration as stated carries through, there will be a greater flow of money and more decentralization, which spawns systems and technology to support that," Kelly said.Over $1 billion in revenue

Electronic Data Systems Corp.

IBM Corp.

$500 million to $1 billion in revenue
KPMG Consulting Inc.
Lockheed Martin Corp.
TRW Inc.
Unisys Corp.

$300 million to $500 million in revenue
American Management Systems Inc.

$100 million to $300 million in revenue
Affiliated Computer Services Inc.
Computer Sciences Corp.
Deloitte Consulting
Keane Inc.
Litton PRC Inc.
Maximus Inc.
Science Applications International Corp.
Systems & Computer Technology Corp.

Source: Federal Sources Inc.

Source: Gartner Dataquest

Source: Gartner Dataquest

Source: Gartner Dataquest

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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